The economy in 2065: predictions and cautions.

Author:Henderson, David R.
Position:Column
 
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There is a great deal of ruin in a nation.

--Adam Smith, qtd. in John Rae, Life of Adam Smith

"Prediction is very difficult," said the late Danish physicist Niels Bohr, "especially if it's about the future." He could have added, "And even more so for the distant future." In economic terms, fifty years is the distant future. For that reason, I do not put a large weight on predictions about what the world economy and the U.S. economy will look like in fifty years.

Having said that, I am willing to make some reasonably confident predictions about the future. I follow these predictions with reasons why I have made them.

Predictions

Here are my predictions:

  1. World population, currently at about 7.2 billion, will have reached 10 billion before 2065 and will not be higher in 2065. In other words, the world population will have stopped growing.

  2. The world economy, measured in real gross domestic product (GDP), will be at least three times as big as it is now owing mainly to productivity growth, not to population growth.

  3. The largest economy in the world, measured by real GDP, will be that of China, and its economy will be at least double the size of the U.S. economy.

  4. U.S. real GDP will be at least twice what it is now owing mainly to productivity growth, not to population growth.

  5. The absolute number of people in the world who are in extreme poverty will be less than half of the number today.

  6. In the United States, the average number of hours worked per year for people with jobs will be about 10 percent lower than it is now.

  7. A weighted average of a broad range of fuel and mineral prices will not be more than 10 percent higher than it is now.

  8. Federal government spending in the United States will be between 20 and 25 percent of GDP.

  9. Economic freedom in the United States, as measured by the Economic Freedom Index, currently showing that the United States is number 12 out of 152 countries ranked, will show (if the index is still computed in 2065) that the United States is at or slightly below twentieth place.

Now to my reasons.

Reasons

Population

The reason I think the world population will continue to grow but then level off to about 10 billion people is that I believe that per capita income worldwide will grow. Empirically, as people's income grows, they have fewer children. We don't know exactly why that is true. Economists' knee-jerk theory is that higher per capita incomes imply a higher value placed on time, which implies a higher opportunity cost of raising children. Then, according to the law of demand, at a higher price fewer children are "demanded."

It turns out, though, that there are some problems with this straightforward way of explaining the strong empirical relationship between income and fertility. Laying out these problems would take me too far afield from the topic at hand, (1) but whatever the cause of the relationship, it is strong. As Larry Jones, Alice...

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